The funding gap for company pensions is shrinking but still stands at a massive £580 billion, according to the latest industry figures for November.
As a comparison, that is equivalent to around 33% of Britain’s national economic output for a year.
The deficit topped out at a record £710 billion in August and has dropped back ever since.
However, the reduction is not a result of companies pumping more money into their pensions, but due to better performance on the financial markets.
The deficit decreased by £50 billion in November, say PricewaterhouseCoopers (PwC), which monitors the performance of the country’s 6,000 or so defined benefit company pensions.
Bank of England blamed
Although the black hole has shrunk, the deficit is still more than £110 billion larger now than at the start of the year.
Many companies blame the Bank of England’s economic stimulation policies for the shortfall as a drop in gilt yields since the June Brexit referendum has seen deficits increase.
Some of Britain’s biggest businesses owe their pension schemes billions.
BT has a £9.5 billion shortfall which has grown by £3 billion since June, while Barclays Bank has seen an £800 million surplus reverse to £1.1 billion in the red.
PwC says that although many company pensions are in the red, not all need to take radical action.
“There are questions around whether the volatility in pension deficit figures is real, and matters. For some pension funds, it may not matter,” said PwC’s global head of pensions Raj Mody.
Do deficits matter?
“The volatility is only there if the situation is monitored frequently and if the measurement method you choose to use tracks volatile market indicators. Most people’s heart rates will go up and down during the day, but that doesn’t mean there’s always an underlying problem.”
But for some schemes, the warning signs are there, he explained.
“For some pension funds, the volatility indicates potential trouble. For example, if asset portfolios are not structured to meet pension benefit payment commitments as they fall due, then pension funds may become a forced seller of assets at a bad time.,” said Mody.
“They are storing up trouble for the future without realising it now – like going on a car journey without enough petrol where everything seems fine until you run out of fuel in the middle of the motorway.”
